A group of nine financial firms, including an admitted felon and two high-frequency trading powerhouses, announced this week that they plan to open a national stock exchange to compete head on with the New York Stock Exchange and the Nasdaq. We’ll detail those players shortly but first some necessary background to explain why this plan must never come to fruition.

Following the 1929 stock market crash, the U.S. Senate conducted three years of hearings into the brazen self-dealing and rigged trading by the major Wall Street firms that resulted in an epic crash that eventually erased 90 percent of the stock market’s value, led to the collapse of thousands of banks, and brought on the Great Depression. The hearings generated front page headlines for years. The public anger was so great that Congress was able to pass two sweeping pieces of legislation: the Securities Act of 1933, which mandated that investors receive significant information on securities being offered for sale to the public through a Federal registration process; and the Securities Exchange Act of 1934 which created the Securities and Exchange Commission and empowered it to register, regulate and oversee brokerage firms, clearing agencies, and, importantly, stock exchanges.

The hearings also led to the passage of the Banking Act of 1933 (a/k/a Glass-Steagall Act), which barred the corruption-prone trading houses of Wall Street from affiliation with commercial banks, whose deposits became Federally insured under the Act. This was meant to prevent runs on Wall Street brokerage firms from turning into runs on the nation’s commercial banks and a full-scale banking panic. The Glass-Steagall Act prevented another epic Wall Street crash for 66 years. Then the Bill Clinton administration, eager to please big money donors on Wall Street, repealed the Glass-Steagall Act in 1999.

Just nine years later, Wall Street collapsed the financial system and the economy again, leading millions of Americans to lose their jobs and their homes and resulting in subpar annual GDP growth ever since. The 2008 crash also resulted in the largest taxpayer bailout of the Wall Street banks in history and trillions of dollars in new national debt from fiscal spending to shore up the sagging economy.

The 1934 Act specifically cited the national interest in explaining why stock exchanges had to be Federally regulated. It reads in part:

“Frequently the prices of securities on such exchanges and markets are susceptible to manipulation and control, and the dissemination of such prices gives rise to excessive speculation, resulting in sudden and unreasonable fluctuations in the prices of securities which (a) cause alternately unreasonable expansion and unreasonable contraction of the volume of credit available for trade, transportation, and industry in interstate commerce, (b) hinder the proper appraisal of the value of securities and thus prevent a fair calculation of taxes owing to the United States and to the several States by owners, buyers, and sellers of securities, and (c) prevent the fair valuation of collateral for bank loans and/or obstruct the effective operation of the national banking system and Federal Reserve System. (4) National emergencies, which produce widespread unemployment and the dislocation of trade, transportation, and industry, and which burden interstate commerce and adversely affect the general welfare, are precipitated, intensified, and prolonged by manipulation and sudden and unreasonable fluctuations of security prices and by excessive speculation on such exchanges and markets, and to meet such emergencies the Federal Government is put to such great expense as to burden the national credit.”

Here’s the short take on the above: twice in the past century, Wall Street has crashed the financial system and economy of the United States as a result of self-dealing and obscene greed. It needs to be policed as if it’s a major terrorist threat.

Now for a look at a few of the firms that want to run this new stock exchange.

UBS, the powerful Swiss bank with a heavy presence on Wall Street, is one of the nine financial firms that announced plans to create the stock exchange, to be called Members Exchange, or MEMX. UBS received a deferred prosecution agreement from the U.S. Justice Department in 2012 for its role in engaging with other banks to rig the international interest rate benchmark known as LIBOR. In exchange for not getting prosecuted, UBS agreed to not commit any more criminal acts. This is what happened next, according to the Justice Department:

“UBS engaged in deceptive FX [forex] trading and sales practices after it signed the LIBOR non-prosecution agreement, including undisclosed markups added to certain FX transactions of customers. UBS traders and sales staff misrepresented to customers on certain transactions that markups were not being added, when in fact they were. On other occasions, UBS traders and sales staff used hand signals to conceal those markups from customers. On still other occasions, certain UBS traders also tracked and executed limit orders at a level different from the customer’s specified level in order to add undisclosed markups. In addition, according to court documents, a UBS FX trader conspired with other banks acting as dealers in the FX spot market by agreeing to restrain competition in the purchase and sale of dollars and euros. UBS participated in this collusive conduct from October 2011 to at least January 2013.”

As a result of its breach of its agreement, in 2015 the Justice Department charged UBS with a felony for its actions pertaining to LIBOR, to which it pled guilty.

Likely one of the reasons that you don’t see the names of JPMorgan Chase or Citigroup among the nine founders of this newly proposed stock exchange is that on the same day that the Justice Department announced it was charging UBS with a felony, it also announced that two other big Wall Street banks, JPMorgan Chase and Citigroup, had pled guilty to a felony involving their participation in rigging foreign currency exchange. Having three felons among the founders of the new stock exchange might have rendered its nickname the Felons Exchange.

It should be noted that in a saner time in America, pleading guilty to a felony would have been enough to put a bank that holds customer deposits out of business. Today, it’s business as usual on Wall Street – at least until the next epic crash.

Another of the nine founding members is Virtu Financial. This is what Senator Elizabeth Warren had to say about the company during a hearing of the Senate Banking Subcommittee on Securities, Insurance and Investment on June 18, 2014:

“For me the term high frequency trading seems wrong. You know this isn’t trading. Traders have good days and bad days. Some days they make good trades and they make lots of money and some days they have bad trades and they lose a lot of money. But high frequency traders have only good days.

“In its recent IPO filing, the high frequency trading firm, Virtu, reported that it had been trading for 1,238 days and it had made money on 1,237 of those days…The question is that high frequency trading firms aren’t making money by taking on risks. They’re making money by charging a very small fee to investors. And the question is whether they’re charging that fee in return for providing a valuable service or they’re charging that fee by just skimming a little money off the top of every trade…

“High frequency trading reminds me a little of the scam in Office Space. You know, you take just a little bit of money from every trade in the hope that no one will complain. But taking a little bit of money from zillions of trades adds up to billions of dollars in profits for these high frequency traders and billions of dollars in losses for our retirement funds and our mutual funds and everybody else in the market place. It also means a tilt in the playing field for those who don’t have the information or have the access to the speed or big enough to play in this game.”

Also in 2014, bestselling author Michael Lewis, a former veteran of Wall Street, released his newest book “Flash Boys.” It thoroughly detailed how high frequency trading had rigged U.S. stock markets. Lewis mentions Virtu Financial in the book as follows:

“In early 2013, one of the largest high-frequency traders, Virtu Financial, publicly boasted that in five and a half years of trading it had experienced just one day when it hadn’t made money, and that the loss was caused by ‘human error.’ In 2008, Dave Cummings, the CEO of a high-frequency trading firm called Tradebot, told university students that his firm had gone four years without a single day of trading losses. This sort of performance is possible only if you have a huge informational advantage.”

In an interview on 60 Minutes on March 30, 2014, Lewis called high frequency trading “legalized front running,” where traders using high speed computers are able to get advance news on prices and what other investors are doing.”

In a saner America, the Securities and Exchange Commission would have outlawed the practice by now. But in today’s America, where Wall Street controls the political campaign purse of the members of Congress and the levers of the Presidential transition team that picks cabinet posts and Federal regulators, we have ended up with Wall Street’s lawyer running the SEC under both the Obama and the Trump administration.

Virtu is the sum of its parts and one of those parts is the former Knight Capital Group which Virtu acquired in 2017. Knight Capital does not exactly have a solid track record for interactions with stock exchanges. The SEC settled charges against it in 2013, which the SEC described as follows:

“During the first 45 minutes after the market opened on August 1, Knight Capital’s router rapidly sent more than 4 million orders into the market when attempting to fill just 212 customer orders. Knight Capital traded more than 397 million shares, acquired several billion dollars in unwanted positions, and eventually suffered a loss of more than $460 million.”

The Los Angeles Times reported that the “trading losses pushed Knight Capital to the edge of bankruptcy and underscored the market’s vulnerability to software-driven trading mistakes.”

Citadel Securities is another of the nine founding members of the proposed stock exchange. On June 25, 2014, Citadel Securities was fined a total of $800,000 by its various regulators for serious trading misconduct. This is what the New York Stock Exchange said Citadel had done:

“The firm sent multiple, periodic bursts of order messages, at 10,000 orders per second, to the exchanges. This excessive messaging activity, which involved hundreds of thousands of orders for more than 19 million shares, occurred two to three times per day.”

In addition, according to the York Stock Exchange, Citadel “erroneously sold short, on a proprietary basis, 2.75 million shares of an entity causing the share price of the entity to fall by 77 percent during an eleven minute period.”

In another instance, according to the New York Stock Exchange, Citadel’s trading resulted in “an immediate increase in the price of the security of 132 percent.”

On January 9, 2014, the New York Stock Exchange charged Citadel Securities with engaging in wash sales 502,243 times using its computer algorithms. A wash sale is where the buyer and the seller are the same entity and no change in beneficial ownership occurs. (Wash sales are illegal because they can manipulate stock prices up or down. They played a major role in the rigged stock market that crashed in 1929.) Citadel paid a $115,000 fine for these 502,243 violations and walked away.

On January 13, 2017, the SEC fined Citadel Securities $22.6 million for falsely telling its broker-dealer clients that “upon receiving retail orders they forwarded from their own customers, it either took the other side of the trade and provided the best price that it observed on various market data feeds or sought to obtain that price in the marketplace.” The SEC found that “two algorithms used by Citadel Securities did not internalize retail orders at the best price observed nor sought to obtain the best price in the marketplace.”

Just last month, Citadel Securities was fined $3.5 million by the SEC for incorrectly “reporting of trade execution time data for approximately 80 million trades” from November 2012 to August 2016.

These examples of regulatory run-ins by Citadel Securities are simply the tip of the iceburg. Citadel has been disciplined and/or fined more than four dozen times by its regulators. A stock broker with that kind of record would be waiting tables, not proposing to run a national stock exchange.